Mauritius maintains rate at 3.5% as inflation forecast lowered

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Written by Central Bank News

Published: November 29, 2017 9:37 PM

The central bank of the Indian Ocean island of Mauritius left its key repurchase rate steady at 3.50 percent to continue supporting economic growth but added it would also "exercise vigilance should there be a resurgence of inflationary pressures in the economy."

The Bank of Mauritius (BOM), which in September cut its repo rate for the first time since July 2016, added that its staff was now projecting headline inflation this year of 3.6 percent and around 3.5 percent in 2018, down from the September forecast of 4.0 percent and 3.8 percent, respectively.

Inflation in Mauritius accelerated earlier this year from an increase in the prices of alcohol, tobacco and diesel oil and hit a 5-year peak of 6.4 percent in June.

But since then, inflation has been decelerating as the transitory shock dissipates and was was steady at 3.5 percent in October and September.

When BOM cut its rate by 50 basis points in September, the bank also said it did not expect inflationary pressures to intensify in the foreseeable future based on stable core inflation. Core inflation eased to 2.1 percent in September from 2.7 percent in August.

Economic growth in Mauritius picked up speed in the second quarter of this year as investment spending rose and growth momentum is expected to be maintained on accommodative monetary policy, upbeat business confidence and the implementation of major public and private projects.

Gross Domestic Product expanded by 4.1 percent in the second quarter, up from 3.4 percent in the first quarter, and bank staff maintained its forecast of real GDP growth this year of 3.8 percent and 4.2 percent in 2018.

As in September, BOM's monetary policy committee was unanimous in its policy decision. At today's its meeting there were lengthy discussions of the implication of a minimum wage and a negative income tax, which was seen as a major stride in reforming the labour market.

The Mauritian rupee, which tumbled in 2015, has been rising this year despite a period of weakening in September and October.

Today the rupee was trading at 33.7 to the U.S. dollar, up 6.2 percent this year.